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May 29, 2013

UPDATE: US: Smithfield: Chinese ownership to benefit US pork sector

The sale of US pork producer, Smithfield Foods, to China's largest pork processor, Shuanghui International, will help open the Chinese market to US hogs, management insisted today (29 May).

The sale of US pork producer, Smithfield Foods, to China’s largest pork processor, Shuanghui International, will help open the Chinese market to US hogs, management insisted today (29 May).

In a bid to assuage concerns over control of the US food group falling into Chinese hands, Smithfield CEO Larry Pope claimed the sale would help address the US trade deficit by boosting pork exports to the growing Chinese market.

“At the end of the day, this is about growing the combined company into a leading global protein group,” Pope said during a conference call with analysts. “We expect to help meet growing demand in China by exporting hogs from the US while continuing to supply markets in the US and around the world.”

He added the transaction was “good news” for Smithfield and the US pork industry as a whole. Smithfield will feed its pork products into Shuanghui’s extensive distribution network in China. For its part, Shuanghui will benefit from the ability to meet growing demand for high-quality, foreign-produced pork products.

“We have been looking at ways to maximise opportunities in China… this just paves the way for a much better export for the whole industry – and the whole industry will benefit from this… Hog producers in Iowa ought to be thrilled as a result of this… And it helps the balance of trade deficit – this helps to put more exports out of the Untied States,” he insisted.

Pope added: “I believe this transaction should make the hog industry substantially healthier than it is today for many years to come.”

The Smithfield cheif executive stressed the firm will continue to operate as a stand-alone unit of Shuanghui and that the Chinese group had no plans to change how Smithfield does business. All of Smithfield’s facilities will remain open, staff will remain in place, contractual agreements will remain unchanged and management will continue to oversee operations. The group will continue to be based in Smithfield in Virginia, and the firm’s commitment to “producing good food responsibly” is “unwavering”, Pope insisted

He suggested the upshot of the deal will be greater resources behind growing Smithfield’s business. “It creates a stronger Smithfield with more resources to grow and meet growing demand for high-quality protein. Shuanghui is committed to investing to create more jobs in the US.”

Shuanghui chairman Wan Long confirmed this sentiment. “We want business to stay the same, but better.”

“Together we can be a global leader in animal protein. China and the US are the most important markets. We are number one in china, Smithfield is number one in the US. No other combination has such a great opportunity.”

Shuanghui has offered US$34 per share for Smithfield, representing a 31% premium on Smithfield’s share price yesterday, the last day before the proposal was unveiled. Pope said that this premium was a reflection of the fact that Shuanghui recognises the benefits of Smithfield’s vertically integrated model, particularly addressing concerns over food safety.

The deal is expected to close in the second half of the year, pending shareholder and regulatory approval.

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